October 2012

Wireless: Verizon vs. AT&T

Wireless: Verizon vs. AT&T

Verizon wireless and AT&T wireless just posted very different Q3 2012 results.  Both companies pointed to many metrics to show improvements, but some of this is the overall market.  What matters to me is their relative performance over time.  Let’s explore some key comparisons before concluding who actually won the quarter:


Gross Adds

For gross adds, we have focused on postpaid retail numbers only.  This is the profit engine and the proving ground for sales and marketing success.  Our calculations suggest that Verizon wireless loaded 4 million gross postpaid retail subscriber to AT&T’s 2.4 million.  While Verizon needs to load more gross to stay flat, since it has a larger retail postpaid base, this certainly is a decisive win for Verizon.


Postpaid Gross Adds – Calculated

Listening to the AT&T quarterly call, we believe this was in part due to AT&T’s decision to keep all the iPhone 5 stock for existing customers.  This shows in their postpaid churn which improved significantly over Q3 2011 despite the earlier launch of the iPhone.



Churn is traditionally measured as a percentage of the base on this metric, Verizon came in with a stellar 0.91% postpaid churn while AT&T also improved to deliver 1.08% postpaid churn.


Postpaid Churn

This means that Verizon lost approximately 2.4m postpaid subscribers in Q3 to AT&T’s loss of 2.2m postpaid subscribers in Q3.   For AT&T this was around 100k fewer losses versus Q3 2011 while for Verizon this was in fact more than 30k more subscribers lost.  The second learning we get from this is that while AT&T could have achieved their entire gross from Verizon losses, the converse it not possible.  This leads us to believe that Sprint and T-Mobile continue to lose significant customers who signed up at Verizon.


Postpaid Churn Volume – Calculated

Together gross adds and churn provide us with what looks like a very unbalanced quarter in terms of net adds.


Net Adds

Again we will focus our analysis on postpaid retail.  Here Verizon added 1.5m postpaid subscribers, more than the last 2 quarters put together and nearly double last Q3.  AT&T on the other hand added a dismal 150K postpaid retail subscribers.  It looks like they really did keep all the iPhones for existing customers!


Postpaid Net Share




The smartphone numbers were particularly interesting.  Both had record loads for smartphones, Verizon loaded 6.8m smartphones in the quarter to AT&Ts 6.1m.  Considering AT&T’s gross was approximately 2.4m this is over 4m (and close to 6% of base) that were upgraded to smartphones.  Verizon on the other hand did approximately 3.6m smartphone upgrades which was less than 4% of their base.  The second point of interest in smartphones was the iPhone.  Verizon loaded 3.1m iPhones of which 650k (or 21%) were iPhone 5.  AT&T on the other hand loaded 4.7m iPhones of which 1.3m (or 28%) were iPhone 5.   This has two impacts:  Firstly operators have to subsidize iPhones more than Android and other smartphones, costing precious EBITDA in the short term, but secondly iPhone customer generate higher ARPU and are more loyal.  So short term loss for AT&T, but long term win.




Verizon stopped reporting ARPU, so our analysis only includes a calculated ARPU which is not accurate, but is probably directionally appropriate.  Our calculations suggest that despite being approximately $10 per subscriber higher on ARPU, that AT&T had a postpaid ARPU increase of 2.37% to Verizon’s (our estimate) postpaid ARPU increase of 2.59%.  We concur with the executives of both companies that the data share plans will be accretive, especially if they can attract customers away from value destroying unlimited plans.


Postpaid ARPU




We were very impressed with AT&T’s network numbers.  It is about time they invested in a big way and we believe that network superiority is a necessary (but not sufficient) condition to attract and retain the best customers.  Well done.



Both enjoyed improved margins and higher revenue.  Where most operators around the world are struggling to maintain ARPU, both Verizon and AT&T have enjoyed data growth faster than voice melt.  If they can continue to manage the transition from voice to data, they are already better than most operators globally.



While AT&Ts quarter was not as good as the headlines suggested or Verizon’s, it was a good foundation for future quarters.  Verizon continues to be the clear winner and we cannot see any amount of M&A or foreign investment changing this in the short or medium term.   If AT&T can use their new LTE network to deliver the speed and consistency of Verizon’s they could alter the balance of power while Verizon goes through a more complicated migration from EVDO to LTE.



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